What is Winding up Process of a Company?
Winding up is the process wherein a company sells all of its business assets for paying off its creditors and distributing the remaining assets if any, among its members or shareholders and then dissolving the business. Here we are discussing Winding up Process of a Company in details.
A petition for winding up can be made by any or all of the following entities:
- The Company
- Creditor or Creditors
- Contributor or contributors
- Such other person as authorized by the Central Government
There are two types of Winding up. They are:
- Voluntary Winding up
- Winding up by Tribunal
Voluntary Winding Up
In Voluntary Winding up of Companies, the process for winding up is triggered by the shareholders. In this kind of winding up, it is not necessary that the company has to be insolvent. The company may or may not be insolvent. If it is solvent, the shareholders may pass a resolution for winding up if they are of an opinion that their objectives have been reached and that it is time to shut down the company down and distribute its assets. If the company is insolvent, the shareholders may trigger a winding up in order to avoid bankruptcy or personal liability for the company’s debts.
The Company can be voluntarily wound up:
- If a special resolution for winding is passed by the company.
- The company in general meeting passes a resolution that the company is to be wound up voluntarily on account of the expiry of the period of its duration fixed by its articles or on happening of any event in respect of which the articles provide that the company should be dissolved.
The following is the procedure for Voluntary Winding up:
- Hold a board meeting with at least two Directors and pass a resolution with a declaration by directors stating that the company has no debts or that the company will be able to pay off its debts by utilizing all the proceeds from the sale of its assets.
- Approve the notice for calling for a General Meeting and a meeting of creditors and the resolution to be passed along with the explanatory statement. Approve the date, place and time of the general meeting and send the notice of the general meeting to all the stakeholders at least 21 days before the meeting.
- Pass the resolution for winding up in the General Meeting by ordinary or special resolution which has to be approved by an atleast3/4th majority
- Hold a meeting of creditors after the general meeting, and get the proposal for voluntary winding up approved.
- File a notice with the registrar for an appointment of a liquidator, within 10 days of passing the resolution.
- Within 14 days of passing such resolution a notice of is required to be given in official gazette and also in two newspapers.
- The certified copies of an ordinary or special resolution passed in general meeting are required to be filed within 30 days of General Meeting.
- Wind up the affairs of the company and prepare the liquidator’s account and get them audited. Hold a Meeting of the company & pass a special resolution for disposal of books and all necessary documents of the company, when the affairs of the company are totally wound up and it is about to dissolve.
- The tribunal after due inspection of accounts and all the necessary compliances have been fulfilled, the tribunal shall pass an order for dissolving the company within 60 days of receipt of such application.
- The appointed liquidator is required to file a copy of the order with the registrar.
- On receipt of the order of the tribunal, the registrar shall publish a notice in the official Gazette &declare that the company is dissolved.
Winding up by Tribunal (Compulsory Winding Up)
Winding up by Tribunal occurs when a company is forced by law or by a court’s order, to sell off its assets and distribute the proceeds to its creditors. The process is usually initiated by the company’s creditors when they are unpaid or when the company becomes insolvent.
- The circumstances under which a company can be wound up by Tribunal are enlisted below:
- Bypassing a special resolution
- When it threatens the sovereignty, integrity or security of the state
- When the affairs are being conducted in a fraudulent manner
- There is a default in filing of financial statements or annual returns with the Registrar for continuous five financial years
The process for winding up of a company for the above-mentioned reasons (except where the company is unable to pay off its debts) shall be made to the Tribunal in accordance with the provisions of 2013 Act.